Premier Foods defies bakery price challenge

UK-based Premier Foods had an organic sales gain of three per cent in the four months to the end of October and said its is on course to meet its market forecast for the full year.

The company's bread and bakeries division remains "challenged" but further price increases were made to make it more profitable, Premier said in a trading statement released today. Sales in the division were "moderately" ahead due to the price rises, but volumes are down the company reported. "Whilst the retail price of our bread has risen, we have only recently started to see similar increases in the retail price of other bread brands," Premier stated. "Consequently, we have seen lower volumes and, combined with the impact of the higher wheat prices, trading profit for the division has been significantly lower during September and October than the same period last year." The company has also made some adjustments at its bakery in Bradford and at its Telford distribution depot to help bring fixed costs down.

The company's spreads and desserts businesses recorded sales growth. Although sales growth also improved for the company's meat-free business, costs are running ahead of normal levels while improvements are made to the efficiency of its factory at Methwold. In the culinary brands business, sales were about 3 per cent ahead of the same period in 2006. Strong summer sales were partly offset by reduced promotional activity in September and October. "This is in line with our strategy of reducing promotional activity, but increasing advertising, on these acquired brands," Premier stated. Sales of cakes also rose 3 per cent. The company completed its exit from the cake van sales operation during the quarter.

Premier is in the process of integrating the business it bought from Campbell's in August 2006 and that of RHM, acquired in March 2006. The integration of the RHM business remains on track to achieve the forecast £85m of annual cost savings, Premier reported. The £28m of annual cost synergies arising from the integration of Campbell's are also being delivered to plan, Premier stated. Altogether the acquisitions will result in a £17m increase in trading profit in 2007, the company stated.

The company is in the process of consolidating its manufacturing network, finishing the closure of the former Campbell's factory at King's Lynn by the end of 2007. Premier has also completed consultation with employees at six manufacturing sites that it plans to close as part of the integration of RHM. The integration and the transfer of production has started. The company has also closed its preserves factory in Dublin and has entered into consultations with employees about the shutting down of its factory in Thurles. In addition to the closure of the Marlow head office in June,

Management has also completed the integration of its culinary brands business within six months of its acquisition. The transfer of the business to Premier's core information systems was completed in October 2007. Management also announced the disposal of the RHM frozen foods business. Meanwhile raw material and packaging inflation has become a "significant" issue across all parts of the business.

"We continue to make significant progress in delivering the price increases necessary to mitigate this cost inflation," Premier stated.

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